Buck Buckles Under White House Turmoil

Market Drivers March 16, 2018

  • Dollar lower across the board
  • WH turmoil continues to dog the greenback
  • Nikkei -0.58% DAX 0.34%
  • Oil $61/bbl
  • Gold $1318/oz.
  • Bitcoin $8088

Europe and Asia EUR: EZ CPI

North America 8:30: USD Housing Starts and Building Permits 8:30: CAD Manufacturing Shipments 9:15: USD IP 10:00: U of M

After a slight rebound yesterday, the dollar resumed its drift lower today dogged by continued turmoil in the White House which once again dragged down US yields.

New reports in Asia session trade that President Trump was about to fire National Security Advisor HR McMaster – one of the last independent voices on his staff – sent the buck lower with USD/JPY dropping through the 106.00 figure in reaction to the report.

White House officials quickly tried to deny the reports, but the markets clearly did not believe them, pushing the pair lower towards key support at the 105.50 level. The amount of turbulence in the White House along with the ratcheting of pressure from the Mueller administration which is now targeting information from the Trump Organization, may be finally starting to unnerve investors.

All of this is happening against a backdrop of lackluster growth and tepid inflation which could make Fed’s hawkish stance look out of place as the much hoped for benefits of fiscal stimulus have yet to materialize. If deficit spending fails to juice up the US economy, the need for monetary tightening will decline markedly and the dollar will face further headwinds as rate hike expectations could decline all the way from the hawkish 4 hikes this year, to a much more dovish 2 hikes.

Next week the market will get a look at the FOMC statement and will try to gauge the Fed’s true intent, but in the meantime the political chaos in Washington DC continues to undermine any attempts at a sustainable dollar rally.

The one currency that has failed to get a strong lift against the dollar is the euro, which did bounce off the 1.2300 figure in Asian session trade, but failed to rise much beyond the 1.2330 level after EZ CPI data showed that inflation in the region remains non-existent. Core CPI in the region remained at 1.1% slightly below the 1.2% eyed and way under the 2% ECB target. The news only reaffirms ECB’s dovish stance to maintain a highly accommodative policy and the pair could drift lower despite dollar’s political woes in a race to the bottom between the two.

With only a smattering of housing and U of M consumer confidence data on the docket today, the economic calendar remains sparse, contributing to the low volatility regime that has prevailed all week. However, headline risk persists and any further political instability out of DC could push USD/JPY towards 105.50 as the day proceeds.

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